Vietnam banks face big capital burden despite dividend plan: Fitch
Fitch-rated Vietnamese banks would need US$4.1 billion of additional capital, of which 90% is accounted for by the state-owned banks.
A plan to allow large Vietnamese state-owned commercial banks to pay dividends in shares or retain dividends will help them to accumulate capital and meet regulatory minimum capital thresholds, Fitch Ratings has said.
Vietnamese banks need huge funds to ensure capital adequacy
|
Media have reported that Vietnamese authorities have agreed to a proposal from the State Bank of Vietnam that would allow state-owned banks to preserve internally generated capital by retaining dividends or paying them out in shares. The plan would still need to be approved by the National Assembly - Vietnam's legislative body - and would enable state-owned banks to follow a practice already in place for their private counterparts.
“We estimate that the positive capital impact for Fitch-rated state-owned banks (Vietcombank and Vietinbank) will be up to 30 basis points (bps), which is small relative to our estimated potential capital shortfall of up to 200bps, assuming they target an 8% Tier-1 capital ratio,” said the credit rating agency.
Vietnamese banks, and state-owned banks in particular, are facing substantial capital needs in the run-up to the implementation of Basel II. These standards will increase banks' risk-weighted assets due to changes to credit risk-weights and the introduction of capital charges for operational and market risks.
According to Fitch analysis conducted late last year, Fitch-rated Vietnamese banks would need US$4.1 billion of additional capital, of which 90% is accounted for by the state-owned banks.
These banks' much larger capital shortfall reflects their lower capital positions and weaker profitability relative to private banks. The total amount of capital required could be even higher if banks raise their allowance coverage to 5.0% of gross loans and Vietnam Asset Management Company special bonds, compared with 1.6% at year-end 2018, in order to address underreported NPLs and Vietnam Asset Management Company special bonds.
The lack of depth in the local capital markets and foreign ownership limits continue to constrain banks' ability to raise common equity, which Fitch views as the best form of loss-absorbing capital.
Vietnam maintains a 30% blanket foreign-ownership limit for banks and 20% limit for a foreign investor deemed to have a strategic interest. Foreign ownership at Vietinbank is already at the 30% cap, while for Vietcombank it is 23%. “Unless the cap is lifted, we expect banks to issue Tier-2 debt to help meet minimum regulatory capital ratios.”
14:39, 2025/01/04
Vietnam stock market set to accelerate in 2025: Experts
Stable macroeconomic fundamentals, ongoing institutional reforms, and favorable monetary policies will be positive for corporate earnings.
16:31, 2025/01/02
Vietnam stock market aims for emerging status by 2025: Finance minister
By the end of 2024, the benchmark VN-Index reached 1,266.78 points, up 12.11% from 2023.
15:33, 2025/01/02
Vietnam set to extend VAT cut for six months
This measure is expected to accelerate the recovery of production and business activities, which will ultimately benefit the state budget and the economy as a whole.
21:29, 2024/12/31
Vietnam’s credit growth projected to expand by 16% in 2025
Growth must put operational safety first, and channel credit to productive business sectors, priority areas, and growth-driving industries.
22:02, 2024/12/17
Regional, international financial centers mean boosters to Vietnamese economy: Deputy PM
Ho Chi Minh City envisions its financial center encompassing the money market, banking system, capital market, and derivatives market.
15:44, 2024/11/14
IFC sets record with US$1.6 in climate financing to support Vietnam’s green transition
The new commitments aim to bolster Vietnam's shift towards a low-carbon economy while enhancing private-sector resilience and competitiveness.
- Vietnam's credit growth up 10% in 10 months
- Building Hanoi's smart city with smart banking
- Vietnam stock market clears major legal hurdle to potential upgrade
- Cashless parking in Hanoi: Good model fuels smart transport
- Banking sector dominates Vietnam’s corporate bond market
- Prime Minister expects lending to grow by 15% this year